Assurant to Pay $3.5 Million to Settle US SEC Accounting Charges

Specialty insurer Assurant Inc. has agreed to pay $3.5 million to settle the U.S. Securities and Exchange Commission's allegations of improper accounting relating to a finite reinsurance contract.

The SEC alleges that Assurant improperly accounted for a $10 million "so-called reinsurance policy." Assurant neither admits nor denies the SEC's allegations.

According to the SEC's complaint, Assurant failed to properly account for the reinsurance policy, which "was subject to an undisclosed 'handshake' agreement that effectively negated risk transfer," the SEC said in its complaint, which was filed in the U.S. Southern District Court of New York.

Assurant should have accounted for the policy, which was written by American Re-Insurance Co., as a deposit rather than true reinsurance, the SEC said. By failing to do so, Assurant overstated its net income for the third quarter 2004 by nearly 10%, the SEC said.

"We are pleased to have the matter resolved, and we look forward to continuing to serve our clients and delivering value for all Assurant stakeholders," Robert B. Pollock, Assurant's president and chief executive officer, said in a statement. With the finite reinsurance investigation completed, the company said it expects to renew its share-repurchase program after releasing its full-year 2009 earnings next month.

The company declined to comment beyond its written statement.

The SEC staff has informed Assurant that it does not intend to pursue any charges or other action against any current executives of Assurant. The company said it believes it also is unlikely that the SEC will pursue any charges or actions against former employees who received Wells notices in 2007.

The settlement is subject to court approval.

Earlier this week, Berkshire Hathaway's General Re Corp. has agreed to pay $92.2 million and dissolve a Dublin subsidiary to resolve federal charges relating to sham finite reinsurance contracts with American International Group Inc. and Prudential Financial Inc.'s former property/casualty division (BestWire, Jan. 20, 2010). The case involving AIG, which agreed to pay $800 million to settle federal securities fraud and improper accounting charges, also resulted in criminal charges against insurance executives. Four former Gen Re executives and one former AIG executive were sentenced to serve jail time in connection with the case.

Last fall, the National Association of Insurance Commissioners estimated a 30% to 40% drop in the use of finite contracts since year-end 2005, when it adopted additional disclosure requirements. Those included requiring chief financial officers to attest that all reinsurance contracts were legitimate risk transfers (BestWire, Nov. 16, 2009).

Shares of Assurant (NYSE: AIZ) were trading at $32.59 a share on the morning of Jan. 22, up 4.12%.

Most of Assurant's subsidiaries currently have Best's Financial Strength Rating of A or A- (Excellent).

(By Meg Green, senior associate editor, BestWeek: [email protected])